How to win the innovation challenge

Episode Highlights

• Innovation could be really practical things like adding new functionality to your existing app that delights your customers. It could be more experimental or moonshots like trying to sell pizza in the metaverse

• A culture of innovation is really about inclusivity. Making sure as many people as possible are included within the innovation function or the innovation frameworks that you're using within your organization

• Your ability to innovate will be determined by the tech stack and the tech estate that you have within your organization. If all of your organizational effort is focused on putting out fires, and keeping the system up, and running, there's not going to be room within your organization for innovation.

• The other thing that typically halts innovation, or really blocks it, is around the approval process, or the mechanisms that support the actual technology itself

• When you set up innovation or start to think around innovation, we really need to make sure that it aligns with the business strategy. There's no point having an innovation function that's focused on building something out that the business isn't going to ever be interested in or it's not the direction they're heading in.

• Using a value-based prioritization method is a really great way of sifting through the ideas to try and identify the good ones.

• Not all experiments, even if successful, are ready to scale or should be scaled. Often when we're innovating, we're trying to learn something new. The learning is the key outcome, not necessarily having something that we can scale straight away.

Podcast Transcript

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[00:00:00] Karen Dumville: Welcome to Pragmatism in Practice, a podcast from Thoughtworks where we share stories of practical approaches to becoming a modern digital business. To thrive in today's fast-changing world, organizations need a systematic and sustainable approach to surface and prioritize new ideas, validate them quickly, take them to market, and then iterate, but this is easier said than done. As the specter of a recession hovers over our economy, executives must now weigh cutting costs and minimizing risk against supporting innovation-enabled growth. Today's guest has some practical advice for navigating common innovation challenges.

I'm your host, Karen Dumville, and I'm here with Andy Nolan, Director of Emerging Technology at Thoughtworks Australia. Welcome, Andy.

[00:00:50] Andy Nolan: Thanks for having me, Karen.

[00:00:52] Karen: It's good to have you here. Just to kick us off, Andy, can you share a little bit about yourself, the role you're in, and maybe how you came to be in that role?

[00:01:02] Andy: For sure. As you mentioned, I'm the Director of Emerging Technologies at Thoughtworks Australia. I've spent most of my career working with emerging technologies in the area of AgTech, MedTech, and the retail domain. That includes working for everyone from small startups right through to large corporations. I started at Thoughtworks just over a year ago heading up the emerging technology practice here in Australia. That has allowed me to work with some really amazing clients locally, but also globally around helping them with innovation and how they can adopt emerging technologies.

[00:01:42] Karen: Amazing. Sounds like a really interesting background and illustrious career. Great to have you here. We often think of innovation as the big revolutionary initiatives that will transform how we engage with our customers, but from your perspective, is this always the case?

[00:02:01] Andy: Innovation is simply combining existing things to create something new. It's an overused term, and we need to be really careful and try and understand what people mean when they're talking about innovation. Innovation could be really practical things like adding new functionality to your existing app that delights your customers. It could be more experimental or moonshots like trying to sell pizza in the metaverse or something like that. Now, the mechanisms we use for funding these innovations and their risk profiles are extremely different. You often hear people talk about innovation in terms of horizons.

Horizon one is really about innovations that will help your existing business and your operations and the return on those innovation investments is quite immediate. Horizon two is really about expanding your business into other services and domains you don't currently work in. Horizon three is more of those moonshots, which is maybe disrupting an entire industry or moving to different domains. When I worked in the ag tech sector for a small startup, we didn't go to work to innovate. We just went to work and we didn't have hackathons and 10% innovation time.

What we did have is really clear purpose around what we were trying to achieve as a group, which led that passion and that drive. We really need to have a clear definition of why we are doing the things we are doing. That's sometimes quite different from just having a vision.. Often I find that leading innovation isn't about individuals having aha moments. It's really about getting individuals to co-create things and come up with the future together rather than following a leader into the future and that really comes back to this idea of creating a culture of innovation. The culture of innovation, you hear people talk about this all the time, but it's really just creating an environment where you allow people to fail and experiment and learn really quickly to hopefully come up with something new, something that will help your existing business or maybe even help you get to that moonshot.

The culture of innovation should also include encouraging as many people as possible within your organization to participate. Innovation shouldn't be put off to the side and part of some lab or something elite like that. It should be embedded in everything we do. The ways that you can do that is to make sure that you have the ways of working and the support and the vulnerability around innovation to allow people to fail and hopefully allow them to come up with that next idea that's going to help your organization.

[00:05:56] Karen: Thanks, Andy. That's really interesting. I like the way you laid out the horizons and the idea that innovation isn't just these big moonshot ideas. It can be how you actually infuse those changes in the business, and you talked about ways of working. Can you just expand how you might have seen that work in other companies? The ideas of how those three horizons work, how do companies actually infuse that in their companies, that framework?

[00:06:28] Andy: Yes, so a good way I've seen it work is to think of it as a portfolio of investments, so horizon one, which is the most immediate horizon, typically, organizations will assign about 70% of their effort, and budget to that horizon two, around 20% and horizon three, around 10%, and it's a really good way to create the visibility around where we're putting our effort and why. The other thing that we can start to do is to make sure that individuals are supported to create these innovations and to come up with these new ideas, that might challenge our current way of thinking and hopefully lead to something new.

[00:07:13] Karen: That's a really good framework for companies to think about deploying in their businesses. As I mentioned earlier, obviously, the current economic climate is putting a lot of pressure on leaders to excel in just their everyday business operations, which is sometimes at the expense of innovative growth. What do you see as the dangers of this thinking and is there a compromise or happy medium right now for businesses?

[00:07:39] Andy: Yes, it's an interesting question and it often comes up around innovation. Do we stop innovation during an economic downturn to hopefully save money and focus on operational efficiencies? Many studies have shown that organizations that invest in innovation during an economic downturn actually outperform their competition during the downturn, but substantially more once the economy recovers, and we can look back to the COVID-19 pandemic where many organizations needed to pivot their business models and ways of working.

Even moving from a centralized work environment to a remote work environment very quickly. We can see that these are great examples of where organizations have had to innovate under extreme uncertainty and pressure about what was coming in the future, and those organizations that have pivoted and created those new business models have actually taken advantage of that and created things that otherwise they wouldn't have put the attention or focus on.

[00:08:46] Karen: I think that's a good point that you make, that it's not just do we stop all our innovation. It may be that we continue some of those big shotinnovations, but then at the same time we are also innovating on our everyday business operations. For the companies that are having to take that approach now and really focus on business operations, do you have any tips for them in how they could quickly innovate around some of that more day-to-day operational type activity?

[00:09:32] Andy: Yes, like the example we gave earlier around the portfolio of innovation. Horizon one is obviously the focus for most organizations at the moment, particularly if they're looking at operational efficiencies and reducing costs. You can do that, but you can also take an innovator's mindset to help you achieve those things. How can we quickly try things out to see if they resonate with customers, or maybe there's operational improvements we could make. We shouldn't do that just from a budgetary point of view. We should make sure that we're using an innovation method to help us achieve those goals. I don't think those two states of operating a business are mutually exclusive. I think they can actually benefit from each other.

[00:10:21] Karen: Absolutely and you mentioned a bit earlier around the idea of a culture of innovation. Could you talk a little bit more about that? What that means to you and how you have seen that work really successfully somewhere else?

[00:10:36] Andy: Yes, so culture of innovation is really about inclusivity. Making sure as many people as possible are included within the innovation function or the innovation frameworks that you're using within your organization. The best way to do that is to create a culture where learning and failure is accepted as a group. That can be easier said than done sometimes but that's what we want to strive for, is that we can create a culture where we're constantly trying to learn new things by trying out little experiments.

The way we design the experiments with success criteria and time boxing things is a great way to make sure that we're also constraining the amount of resources that we need to apply to a particular experiment. We don't end up with these long running time consuming and quite costly experiments running into the future. Where I've seen innovation fail within organizations has been around generating or setting up these innovation labs or exclusive groups where they're allowed to innovate and the rest of the organization can't. It creates a really big divide between the two parts of the organization. A better way of doing it is to set up projects that have an element of innovation in them that allows more people to participate. The more people within your organization that contribute, or have this innovation mindset, the more chance you have of coming up with that next great idea or creating a customer experience that really delights your consumers.

[00:12:33] Karen: That's a great idea. I guess when you do that, you're infusing this idea of innovation throughout the company and getting more people on board, aren't you?

[00:12:40] Andy: Exactly.

[00:12:42] Karen: Yes. When companies are thinking about innovation, how do they then bring in the use of their current technology base? How should they be thinking about that in alignment with innovation?

[00:12:59] Andy: We think about this as innovation maturity of an organization. Your ability to innovate will be determined by the tech stack and the tech estate that you have within your organization. If all of your organizational effort is focused on putting out fires, and keeping the system up, and running, there's not going to be room within your organization for innovation. People are going to be so consumed with BAU, they just won't have the time.

One of the things we encourage organizations to do is to really invest in their engineering infrastructure to make sure that the systems that they're running are as self-sufficient as possible, and to reduce the amount of labor required to keep them up, and running. By doing so, you'll not only free up your people to think about other things other than BAU, but you'll also have a really strong foundation to innovate upon.

If you have systems in place that allow you to very quickly test out, and deploy ideas into production, measure if they were successful, or not, and keep iterating on, you'll actually try out more and more ideas. The more ideas you can try, the greater chance you have of stumbling upon some really great innovations that will really resonate with customers, and hopefully, grow your organization.

The other thing that typically halts innovation, or really blocks it, is around the approval process, or the mechanisms that support the actual technology itself. If it's a long, lengthy process to get something into production because you need to get sign-off from 10 different people, that's friction will reduce the chances, or reduce the amount of times that you push things into production and therefore decrease your chance of success around finding some useful innovation.

Working on the ways of working and the approval process, working on the fundamental engineering infrastructure within organizations will not only free up your employees to have more time to innovate and also allow you to innovate faster.

[00:15:26] Karen: Good tips there. Thank you. Is it possible to take a sustainable approach to driving innovation? What's your thought on that?

[00:15:37] Andy: When you set up innovation or start to think around innovation, we really need to make sure that it aligns with the business strategy. There's no point having an innovation function that's focused on building something out that the business isn't going to ever be interested in or it's not the direction they're heading in.

An example that I often think about is that if we are a retailer that has a goal of being Australia's most sustainable supermarket it wouldn't make sense then for the innovation function to go and invest in building some solution that uses a blockchain that is quite an energy-intensive and it actually goes against those goals as an organization.

We're innovating, we need to be aware of where the business is heading and what their strategies are. If we can align our innovations to those strategies and goals it actually helps us improve the business buy-in and make sure that stakeholders understand how this all relates back to what we're trying to achieve as an organization.

Another thing we can think about is how we come up with ideas and how we prioritize those ideas. Using a value-based prioritization method is a really great way of sifting through the ideas to try and identify the good ones. Using value-based prioritization is a way of determining not only just the financial value that an idea might bring to an organization but maybe even also the social and the environmental value.

It just really depends on where your organization is at and what they are looking to do. It's really helpful to come up with a set of criteria that you'll use to assess these ideas and that criteria should really embody the strategy of the organization. Ideally, it will reflect the strategy and the goals and will be a way of making sure that the ideas that you select to invest your time in will have the best chance of success to get, buy-in from stakeholders and hopefully, help grow the business.

[00:18:03] Karen: That's a very helpful framework to think about. What are some of the other criteria you might have seen in that prioritization? Because there's never any shortage of ideas in a company and innovations that they can work on. You mentioned there some of the values social, perhaps sustainability. What are some of the other maybe business-oriented ones that you've seen?

[00:18:33] Andy: Yes, driving customer value and, those type growth and all of these sorts of things are typical ones, we will add into a criteria when assessing ideas. There's the idea with your criteria is really to have a spectrum of areas that we're trying to cover. It goes back to that portfolio ideas. What we find when we assess ideas is that they will often score quite well with some of the criteria, but poorly with others.

A really great way to make sure that you have a balanced portfolio of ideas is to select ideas that have different shapes to them. Select an idea that ranks really highly with some criteria and low with others, and then select another idea that has the opposite looking profile, just to make sure you're covering your bases and you have a greater chance of success, because not all ideas will score well in all categories.

[00:19:34] Karen: Yes. You'd obviously have different weightings and things on these categories depending on the importance of those things to your organization, right?

[00:19:43] Andy: Absolutely. You can always, even go as far as having different weightings to the people that are providing the scores as well, because, it's not always leaders in the room that have the best ideas. We need a democratic way, but also a practical way of combining these scores and coming up with a scoring system that is fair, but also gets us to an outcome that we need to, gets us to the goal that we need to as quickly as possible.

[00:20:15] Karen: Yes. No, I totally agree with that point that, can often be seen around businesses, different, levels of waiting for individuals that are weighing in on that. That's a good tip. If an experiment does prove successful during the prototyping phase or the experimental phase, what are then the steps for transforming that idea to something that could be taken to market or use more broadly within an organization?

[00:20:44] Andy: Yes, so not all experiments, even if successful are ready to scale or should be scaled. Often when we're innovating, we're trying to learn something new. The learning is the key outcome, not necessarily having something that we can scale straight away. This is a lesson I learned when I was working in retail and we'd often develop proof of concepts or pilots that were really amazing and delighted the stakeholders and proved the point.

The question came to us quite quickly was how do we scale this to 5,000 stores nationally or globally? The key here is that managing the expectations of the stakeholders will really help you set them up for understanding that a proof of concept doesn't always have all of the engineering infrastructure and support functionality required to scale it straight away. There can often be quite a lengthy process of actually productionizing these ideas. One of the lessons I learned the hard way was to make sure that these proof of concepts and pilots weren't developed in isolation of the teams that would end up having to maintain and run these systems.

Right from the start, it makes sense to include those teams in the ideation process because they'll have insights into the domain and the practicalities of running these systems that, as an isolated innovation function, you probably won't have or appreciate. Making sure that they're included in the process from the very start and they can come along the journey with you and make sure that the proof of concept and the pilot has the chance of succeeding and getting beyond the lab and into production and being part of the core business in the future.

The other thing to think about when you are doing these projects is to make sure that you avoid Zombie projects. Zombie projects are those projects that just keep continuing to run and they consume resources and they don't really add value.

These projects can often be a sign of not having a clear definition of success and criteria around that. One of the great ways to avoid that is to timebox things, make sure that the success criteria is transparent to the project team, but also the stakeholders to make sure that things are contained and don't tend to run on forever.

[00:23:35] Karen: That's a good point, Andy. In your experience, what is the typical timing? What timeframe might you put on an experiment or an innovation to say, obviously, you've got criteria and measures and things, but what have you seen in terms of how long it should potentially take to get an idea proven?

[00:23:57] Andy: Yes, it really depends on the idea and also the horizon that you're operating within. Horizon-3 ideas generally take a very long to prove out and find that product market fit. If it's an H1 idea that's a small innovation that you're adding a feature to your app or something like that, they can be quite short. There could be days or weeks. Typically, to have enough time to prove anything out, it's probably going to take in the order of two to three months.

Again, it depends on the complexity of the idea itself. I like this concept of thinking that even really tiny things can be innovations all the way through to those big moonshots. We just need to right-size the constraints and the funding and the timing to suit the idea.

[00:24:50] Karen: Obviously, the other side of the coin that you mentioned there just before in terms of these ideas was measures of success. Time being one thing, but then is it measuring up to the success criteria that had been laid out? What tips and advice do you have for companies on how they can measure the success of their innovation efforts?

[00:25:14] Andy: I think it's really important to agree on the measures of success before you really get started. That's with the team developing the innovation or the project itself, and also the key stakeholders to make sure that there's alignment on what we're trying to achieve here and how we will know when we're successful or not. Also, making sure that you can measure those metrics as much as possible.

However, one of the problems with innovation is that we're often trying to achieve learning as well as achieving our goals with metrics and learning is not often reflected very well in growth or other metrics. Having room to somehow express that to key stakeholders as well as the project team, in addition to those measurable metrics that we have, is a really great way to provide that visibility for stakeholders. Also, let them know when things are succeeding or failing. Just to make sure that they have clear visibility and confidence that their investment into these things, they're getting the most out of.

One of the biggest challenges I've seen in organizations is in the past is actually hiding the failures from leadership because that would be perceived as being weak or not understanding the domain or what you're doing. It takes a little bit of courage to actually talk about these failures and talk to leadership about what went wrong and what we learned.

It's a key part of keeping them on the journey with you and it goes back to that visibility piece, is making sure that everyone is aware that, in this space, things will fail and that's okay. In building that culture of innovation, together we can get to these greater outcomes that maybe we otherwise wouldn't have discovered.

[00:27:23] Karen: That's it. Not everything's going to be successful. I guess the point is How do you make failures a part of that culture of innovation? That's the key here, isn't it, really?

[00:27:34] Andy: Exactly.

[00:27:34] Karen: Any final thoughts from you, Andy, before we wrap up?

[00:27:39] Andy: I think the key one we are hearing at the moment is how do organizations innovate in an economic downturn. The other key area is around the innovation required for organizations to achieve their sustainability goals. We often think that they're at odds with each other. How can you be more sustainable but also reduce costs? I challenge organizations to actually find those opportunities to do both. One example that came up recently was an organization that needed to reduce their travel-related emissions to reach their net zero target by 2030.

In doing so, we actually identified a number of ways that they could change user behavior and gamify and build dashboards around creating visibility in this space. They could reduce their emissions, but also they had this opportunity to substantially reduce the costs associated with travel. It's not a moonshot innovation, but it's a great way of thinking around innovation and challenging ourselves to not have preconceived ideas about what these outcomes could be and we can achieve multiple goals simultaneously if we think hard about it.

[00:29:00] Karen: That's a really good example for the times. Andy, thank you so much for sharing your insights today, and to our audience, thanks for joining us for this episode of Pragmatism in Practice. If you'd like to listen to similar podcasts, please visit us at thoughtworks.com/podcasts, or if you enjoyed the show, help spread the word by rating us on your preferred podcast platform. Thank you, Andy.

[00:29:25] Andy: Thanks, Karen.

[00:29:31] [END OF AUDIO]